Taxation-Federal Commons^™

Algorithmic Tax Ownership, Young Ran (Christine) Kim, Dmitry Erokhin

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Tax ownership is a crucial concept for determining tax liabilities, compliance, and enforcement. However, neither the courts nor the IRS has provided clear guidance on how to analyze it. Since the Supreme Court first outlined a twenty-six-factor test for determining tax ownership in Frank Lyon Co. v. United States in 1978, this multifactor test has remained largely unchanged, and there has been no further guidance from the courts or the IRS to this day. Even tests with shorter lists of factors only add to the confusion regarding compliance and enforcement, as there is no clarity on which factors are most …

Dividend Distribution Tax: More Than Meets The Eye - A Critical Analysis Of Polycab India Ltd. V. Assistant Commissioner Of Income-Tax, Ashrita Prasad Kotha

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The case emanates from the dividend distribution tax (DDT) paid by Polycab on shares held by International Finance Corporation (IFC), one of its shareholders. IFC was set up by an international agreement to support the private sector in developing countries and was granted tax immunity on its income and transactions under the founding multilateral treaty and supporting domestic law. Polycab sought refund of DDT owing to IFC's immunity. The Income Tax Appellate Tribunal (ITAT) ruled in favour of Polycab by considering dividend distribution within the immunity clause and reading in an exemption into the income tax legislation. Significantly, the DDT …

Taxing Litigation Finance, Young Ran (Christine) Kim

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The emerging litigation finance industry has the capacity to expand access to justice but also raises important legal and ethical questions. Although much has been said about the industry’s potential to increase frivolous lawsuits and permit improper control over a claim by the funders, scholarly discussion on the proper tax treatment of the parties involved has fallen by the wayside. The problem arises in classifying litigation finance contracts as either a nonrecourse loan, immediate sale, or variable prepaid forward contract, all of which discretely impact the timing and character of income. Unfortunately, courts have traditionally found it difficult to draw …

Boden Lecture: Taxation Of Autonomous Artificial Intelligence, Reuven S. Avi-Yonah, Lucas Brasil Salama, Herbert Snitz, W. Robert Thomas

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This Article proposes that tax can be a useful supplement to other measures to regulate Autonomous Artificial Intelligence (AAI) and limit its potential harmful effects. This proposal differs from command-and-control regulation of AAI along the lines of European Union legislation that may unduly limit the development of AAI. It also differs from existing proposals to tax AAI to generate revenue to help workers displaced by AAI programs, or to tax the data used by AAI The proposal is based on granting AAI programs like ChatGPT separate legal personhood, like corporate personhood, while incentivizing or requiring their corporate owner to place …

Taxation’S Limits, Luís C. Calderón Gómez

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Countless pages have been devoted to the question of why everyone should pay tax, yet its opposite has gone largely unnoticed: why should some people and organizations not pay tax? Our tax system exempts from ordinary income taxation a wide and diverse array of people and organizations engaged in significant economic activity—from parents providing childcare services for their family to consular activities and charities operating animal shelters—seemingly without a convincing explanation. Perhaps because of the dizzying diversity of tax-exempt activities, scholars and policymakers have avoided comprehensively or coherently justifying our exemption regimes.

This Article develops a novel normative theory that …

Effects From Moore: Does The Corporate Tax Require Realization?, Reuven S. Avi-Yonah

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This paper explores the history of the corporate tax as an excise versus income tax and explains potential effects from the Moore and Altria cases.

Safeguarding Taxpayer Data, Michael Hatfield

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The Internal Revenue Service (IRS) collects more information on more individuals than any other government agency. The information is not only financial but personal, potentially including information about health care needs and decisions; the caregivers, disabilities, and foreign birth of children; the educational progress and felony convictions of students; and one’s religious and charitable associations. In acknowledging the vast quantity of information held by the IRS, and the necessity of taxpayers trusting tax administrators with their information, Congress provided greater protection for taxpayer information under the Internal Revenue Code (IRC) than it was provided under the Privacy Act. Congress obligated …

Tax Reporting As Regulation Of Digital Financial Markets, Young Ran (Christine) Kim

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FTX’s recent collapse highlights the overall instability that blockchain assets and digital financial markets face. While the use of blockchain technology and crypto assets is widely prevalent, the associated market is still largely unregulated, and the future of digital asset regulation is also unclear. The lack of clarity and regulation has led to public distrust and has called for more dedicated regulation of digital assets. Among those regulatory efforts, tax policy plays an important role. This Essay introduces comprehensive regulatory frameworks for blockchain-based assets that have been introduced globally and domestically, and it shows that tax reporting is the key …

Whirlpool’S Subpart F Position Was Inconsistent With Congressional Intent, Jeffery M. Kadet

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I believe that Whirlpool took an untenable position on allocation in its 2009 tax filings. The Tax Court in its Whirlpool decision corrected this position using a reasonable approach that used the taxpayer’s own accounting. Now, in their article, Yoder et al. have labeled the Tax Court’s approach a “fundamental flaw” while championing Whirlpool’s position. Considering this situation, it is critical that Treasury and the IRS add appropriate guidance to reg. section 1.954-3. This would clarify that in the case of sales to related or unrelated persons, with no locally based sales personnel and where group personnel in other locations …

State Digital Services Taxes: A Good And Permissible Idea (Despite What You Might Have Heard), Young Ran (Christine) Kim, Darien Shanske

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Tax systems have been struggling to adapt to the digitalization of the economy. At the center of the struggles is taxing digital platforms, such as Google or Facebook. These immensely profitable firms have a business model that gives away “free” services, such as searching the web. The service is not really free; it is paid for by having the users watch ads and tender data. Traditional tax systems are not designed to tax such barter transactions, leaving a gap in taxation.

One response, pioneered in Europe, has been the creation of a wholly new tax to target digital platforms: the …

The Parallel March Of The Ginis: How Does Taxation Relate To Inequality, And What Can Be Done About It?, Reuven S. Avi-Yonah

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The United States currently has one of the highest levels of inequality among industrialized economies. In addition, numerous scholars have shown that social mobility in the United States is significantly lower than it was in the period between 1945 and 1970, when inequality was declining. The combination of these trends is dangerous because it risks transforming the United States into a society where small elites capture most of the gains, a pattern in which growth cannot be sustained over time. The level of inequality in the United States after taxes and transfers are taken into account is much lower, but …

The Ingenious Biden Tax Plan, Reuven S. Avi-Yonah

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In this article, the author considers the Biden administration’s Made in America Tax Plan, which would overhaul the corporate and international tax provisions of the Tax Cuts and Jobs Act and represents a long-overdue effort to more fairly tax U.S.-based multinationals.

Federalizing Tax Justice, Reuven Avi-Yonah, Orli Avi-Yonah, Nir Fishbien, Hayian Xu

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The United States is the only large federal country that does not have an explicit way to reduce the economic disparities among more and less developed regions. In Germany, for example, federal revenues are distributed by a formula that takes into account the relative level of wealth of each state (the so-called Finanzausgleich, or fiscal equalization). Similar mechanisms are found in Australia, Canada, India, and other large federal countries. The United States, on the other hand, has no such explicit redistribution. Each state is generally considered equal and sovereign, and the federal government does not distribute revenues to equalize …

The Baby And The Bathwater: Reflections On The Tcja’S International Provisions, Reuven S. Avi-Yonah

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In this article, the author considers how the international provisions of the Tax Cuts and Jobs Act could be improved.

Is Gilti Constitutional?, Reuven S. Avi-Yonah

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In this article, Avi-Yonah argues that the global intangible low-taxed income regime may be an unconstitutional attempt to tax the foreign-source income of foreign entities, and he offers an alternative.

Taxing Parents: Welfarist Theories, Shannon Mccormack

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The Internal Revenue Code (the "Code") taxes parents inequitably. Couples with a sole earner are undertaxed compared to couples with dual earners and to single parents. Legal tax scholarship (including my own) has identified the many inequities that result from this sole-earner bias and have called for its elimination. But while these arguments have been sufficient for some, they do remain susceptible to the criticism that they are theoretically incomplete.

That critique might proceed as follows. Simply establishing that an inequity exists does not create a full argument for legal reform. After all, it might be argued, the Code plays …

The Rise Of Law And The Fall Of Circular 230: Tax Lawyer Professional Standards, 1985-2015, Michael Hatfield

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This third article focuses on the two issues that dominated discussions of professional responsibility standards for tax lawyers in the 1985-2015 period: return position standards and tax shelter opinions. It opens with consideration of the ABA’s 1965 opinion providing “reasonable basis” as the standard for undisclosed return positions, and then traces the response to that opinion as the response prods the development of the 1985 replacement with its “realistic possibility of success” standard. The Article documents the extensive interaction between Congress, the Treasury Department, and the tax bar over the next 30 years during which penalties are studied and revised …

Taxing Parents: Welfarist Theories, Shannon Weeks Mccormack

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The Internal Revenue Code (the “Code”) taxes parents inequitably. Couples with a sole earner are under-taxed compared to couples with dual earners or single parents. Previous scholarship has identified these inequities and then argued that this sole earner bias should be eliminated. These arguments, however, have often been incomplete. Simply establishing that an inequity exists does not create a full argument for legal reform. After all, the Code plays favorites all the time. Scholars have traditionally turned to theories of distributive justice when evaluating whether tax preferences are warranted. These theories offer competing visions about the way resources should be …

Coca-Cola: A Decisive Irs Transferpricing Victory, At Last, Reuven S. Avi-Yonah, Gianluca Mazzoni

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In this article, Avi-Yonah and Mazzoni examine the Tax Court’s decision in Coca-Cola, the first decisive IRS victory in a major transfer pricing case since 1979.

Covid-19 And Us Tax Policy: What Needs To Change?, Reuven Avi-Yonah

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The COVID-19 Pandemic already feels like a historical turning point akin to Word Wars I and II and the Great Depression. It may signal the end of the second period of globalization (1980-2020) and a change in the relative positions of the US and China. It could also lead in the US to significant changes in tax policy designed to bolster the social safety net which was revealed as very porous during the pandemic. In what follows I will first discuss some short-term effects of the pandemic and then some potential longer-term effects on US tax policy.

A New Corporate Tax, Reuven S. Avi-Yonah

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If we can regulate our corporations simply through the medium of taxation, we can destroy every trust in a fortnight. It would be a great deal better for the Finance Committee to turn its attention to the imposition of such a tax upon corporations and the persons who actually need regulation, who are exercising powers that are injurious to the American people, destroying competition and invading our prosperity, than to attempt to levy a revenue tax upon all the little shareholders of all the little corporations throughout the length and breadth of the United States.

Why R&D Should Be Allocated To Subpart F And Gilti, Stephen E. Shay, Reuven S. Avi-Yonah, Patrick Driessen, J. Clifton Fleming Jr., Robert J. Peroni

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This article responds to the notice of proposed rulemaking under sections 861 and 904 (REG105495-19) published in the Federal Register December 17, 2019 (the proposed regulations). The proposed regulations would not allocate U.S. shareholder deductions for research and development or experimentation (R&D or R&E) expenditures under section 174 (R&D deductions) to a gross income inclusion under section 951 (subpart F inclusion) or section 951A (global intangible low-taxed income)1 from a controlled foreign corporation for foreign tax credit limitation purposes.

Antitrust And The Corporate Tax: Why We Need Progressive Corporate Tax Rates, Reuven S. Avi-Yonah, Lior Frank

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In this article, Avi-Yonah and Frank explore how progressive corporate tax rates could address the abuse of power by monopolistic big tech companies.

Rodriguez, Tucker, And The Dangers Of Textualism, Reuven S. Avi-Yonah

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The Supreme Court is increasingly turning toward textualism in interpreting statutes. This is part of its general hostility toward judge-made law, as evidenced by its recent unanimous decision in Rodriguez that there should be no federal common law except in extraordinary circumstances. Textualism poses a particular danger in the tax context because the Internal Revenue Code is so complicated and lends itself to manipulation so that courts have since the 1930s used a variety of judge-made legal doctrines to prevent such results. The classic Gregory decision from 1935 involved just such a case: The literal application of the code resulted …

Does Capital Bear The U.S. Corporate Tax After All? New Evidence From Corporate Tax Returns, Edward Fox

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This article uses U.S. corporate tax return data to assess how government revenue would have changed if, over the period 1957–2013, corporations had been subject to a hypothetical corporate cash flow tax—that is, a tax allowing for the immediate deduction of investments in long-lived assets like equipment and structures—rather than the corporate tax regime actually in effect. Holding taxpayer behavior fixed, the data indicate actual corporate tax revenue over the most recent period (1995–2013) differed little from that under the hypothetical cash flow tax. This result has three important implications. First, capital owners appear to bear a large fraction of …

Letter From Jeffery M. Kadet And David L. Koontz To Internal Revenue Service (Jan. 16, 2020) On Proposed Regulations Reg-100956-19, Jeffery M. Kadet, David L. Koontz

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No abstract provided.

Caregivers And Tax Reform: Before And After Snapshots, Shannon Weeks Mccormack

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The Tax Cuts and Jobs Act (TCJA) changed the way families are taxed, starting in tax year 2018. By rearranging a myriad of deck chairs, politicians painted rosy pictures of families reaping the benefits of tax reform. In reality, however, generalizations cannot be made and the extent to which any one family gains or loses depends on particular facts. Even more obscured is the way in which the TCJA changed –– and failed to change –– the taxation of different types of caregivers. This Essay seeks to provide needed clarity in this area. It begins by offering snapshots of how …

A U.S. Dst? The Potential Impact Of The Cloud Regulations, Reuven Avi-Yonah, Karen Sam

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In this article, the authors explain how the recently proposed U.S. cloud computing regulations would apply to U.S. and foreign providers, and consider the potential consequences if the rule for permanent establishments and U.S. trades or businesses changes in 2020.

The Games They Will Play: Tax Games, Roadblocks, And Glitches Under The 2017 Tax Legislation, David Kamin, David Gamage, Ari Glogower, Rebecca Kysar, Darien Shanske, Reuven S. Avi-Yonah, Lily Batchelder, J. Clifton Fleming, Daniel Hemel, Mitchell Kane, David Miller, Daniel Shaviro, Manoj Viswanathan

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The 2017 tax legislation brought sweeping changes to the rules for taxing individuals and business, the deductibility of state and local taxes, and the international tax regime. The complex legislation was drafted and passed through a rushed and secretive process intended to limit public comment on one of the most consequential pieces of domestic policy enacted in recent history. This Article is an effort to supply the analysis and deliberation that should have accompanied the bill’s consideration and passage, and describes key problem areas in the new legislation. Many of the new changes fundamentally undermine the integrity of the tax …

Letter From Jeffery M. Kadet And David L. Koontz To Internal Revenue Serv. (Aug. 20, 2019) On Notice Of Proposed Rulemaking: Classification Of Cloud Transactions And Transactions Involving Digital Content, Jeffery M. Kadet, David L. Koontz

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No abstract provided.